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Earnings miss estimates on low utilization

Our view

PLNG’s 3QFY23 reported operating profit at Rs 16.7bn (+20% YoY; +43% QoQ) stood ahead of our and street estimates on booking of Rs 8.5bn as ‘Use or Pay’ charges towards CY22, during the quarter. Adjusted for the same, the operating profit at Rs 8.3bn (-41%YoY; -30%) missed our and street estimates, due to lower than estimated utilization at Dahej terminal, as service cargoes declined sharply QoQ & YoY by ~39%. Availability of cheaper alternate fuels (propane) and domestic gas impacted demand for expensive LNG, in-turn impacting utilization for PLNG. We believe that in the near term, a) high LNG prices environment and b) commissioning of RIL’s MJ field by end of Feb’23, which could substitute LNG import, pose a challenge, but in the longer run, India’s dependence on LNG is only going to increase. In addition, PLNG is investing in brownfield and greenfield projects to cement its position in the LNG import market. Maintain BUY.

Result Highlights

* Profitability: Adj. Ebitda and PAT during the quarter, stood at Rs 8.3bn (-41% YoY; -30 QoQ) and Rs 3.3bn (-59% YoY; -55% QoQ), below estimates on weaker utilization at Dahej. Reported Ebitda and PAT however stood at Rs 16.7bn (+20% YoY; +43% QoQ) and Rs 11.8bn (+46% YoY; +59% QOQ).

* LNG throughput: The total throughput stood lower than our expectations at 167 mmbtu (-20% YoY & -13% QoQ). Weaker throughput stemmed primarily from muted demand for higher prices LNG, vis-à-vis cheaper domestic gas and alternate fuels (LPG/Propane)

* Dahej Terminal: Dahej throughput for the quarter stood at 154tbtu (2Q: 182tbtu), implying a utilization of 69% (2Q: 82%). The cargo mix included 104tbtu of LT (2Q: 103tbtu), 3.0tbtu of ST (2Q: 2tbtu) and 47tbtu (2Q:77tbtu) of Service cargo. The LT cargo also included 5.4tbtu of Gorgon LNG cargo meant for Kochi Terminal, diverted to Dahej. The current tariff rate at Dahej terminal stands at Rs 57/mmbtu and the implied tariff for service cargoes at Rs 56/mmbtu (2Q: Rs 56.9/mmbtu).

* Kochi Terminal: Kochi throughput for the quarter stood at 13tbtu (2Q: 10tbtu), implying a utilization of 20% for the quarter. The cargo mix included only 13tbtu (2Q:19tbtu) of LT cargo. The tariff at Kochi terminal stood at Rs 81.03/mmbtu.

* Capex: The planned capex for FY23 stand at Rs 12.5bn and the same for FY24 is Rs 18bn. The key programs undertaken/planned are a) ongoing, Rs 35bn capacity expansion of Dahej terminal by 5mmt, b) Rs 23bn construction and commissioning of Gopalpur terminal, where PLNG has taken board approval and is in process of taking environmental and other procedural approvals and c) Rs 130-140bn PDH - PP project , which is still is early stages of planning with board approval pending for the same

Valuation

We value PLNG at Mar 24 TP of Rs 320/sh on DCF basis, implying a target PE multiple of 16x FY25e, vs 11x the stock is trading at.

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